Lydia Leong has elevated the discussion on the commoditization of cloud infrastructure in her response to my original post titled “Cloud Infrastructure: The Next Fat Dumb and Happy Pipe?” Her post, titled “Does cloud infrastructure become commoditized?“, rightly points out that added value has a life of its own that will tend to allow infrastructure providers to deliver value through customer service, good enough economies of scale, or other value-added capabilities that surround the infrastructure. She also rightly points out that it will take time for all this to mature and that means differentiation for quite some time. I think we are mostly in agreement although we differ perhaps in time-frame and aggressiveness of the commoditization. I argue that just as we don’t need 50 phone companies, we don’t need 50 cloud infrastructure giants. Certainly, Lydia is correct when she says there will be many players over the next 10 years. But the trend will be an explosion of infrastructure providers and then a decline over time as they begin to glut the market.
An old article published on the Internet a while back makes plain why this is so within an area like cloud infrastructure when it says “There is no formula for combating commoditization; how it is dealt with largely depends on the nature of the industry and the mode of competition therein. Commoditization is less likely to infect markets that require more capital investment to enter, such as heavy manufacturing. But even those industries are affected by burgeoning online business-to-business marketplaces. The capital investment required to enter into the modern information technology and computer software industries, meanwhile, is relatively small. As technology develops, it gets smaller all the time.” Read the complete article here.
And because of this (among other reasons I have mentioned in my post), I feel that it is only a matter of time for cloud infrastructure (in the public cloud) to commoditize as well. Then we will see rapid decline of the number of infrastructure providers. But whether you believe it will be 5-7 years, or 10-15, there will be a decline. And if you are in that market when the decline begins, the rug may be pulled out from under you faster that you ever imagined.
So, thanks, Lydia for elevating the discussion and clarifying the issues and time frame. But, let’s make a bet. I’ll place my wager on a cloud services provider that delivers value added on TOP of infrastructure (i.e. delivers business services or application services, or information services, or brokerage services, etc.) while you bet on a pure cloud infrastructure provider who delivers just an infrastructure platform. In ten years, lets count the percentage growth (positive or negative) in each area and we will see.
The winner buys because she/he will be flush with cash.
P.S. Here is an excerpt from an upcoming piece of research I am publishing on cloud brokerages, which is where a lot of money will be made in value-added services.
“The future of cloud computing will be permeated with the notion of brokers who broker the relationship between providers of cloud services and the service consumers. In this context, a broker might be software, appliances, platforms, or suites of technologies that provide enhancement of the base services that are available through the cloud. Enhancement will include managing access to the services, providing greater security, or even creating completely new services. The purpose of these brokers will be to add value to existing services, and to deliver new services and opportunities built and delivered on top of the old.”